Australian winegrowers say cheers to China's changing tastes

By Byron Kaye

SYDNEY (Reuters) - Australia's Treasury Wine Estates Ltd (TWE.AX) said on Thursday sales to Asia soared in the first half, another sign that China's $12 billion wine market is being transformed from the bottom up after a slowdown in sales of prestigious vintages.

The world's largest stand-alone winemaker, owner of the Penfold's, Wolf Blass and Lindemans labels, said first-half sales to Asia more than doubled from the same period a year earlier to A$157.3 million ($113 million), boosted by middle-of-the-range "mass prestige" labels and a major distribution drive.

While France dominates China's wine import market with 48 percent, it is slowly losing market share. In 2015, Chinese imports of Australian wine leapt 71 percent by volume, the biggest increase on record, while imports from France grew 31 percent, according to Australian government figures.

Meanwhile the value of Australian imports climbed only 66 percent, suggesting more lower-priced wine was sold as the Chinese economy slowed and a corruption crackdown changed the culture around the giving of expensive gifts.

"There's growing evidence that the once-lucrative gifting market, which saw the exchange of high-value wines regularly close to the A$1,000 mark, is being moved away from as consumers actually look to buy fine wine for taste to match cuisine," Sydney wine critic Mike Bennie said.

According to government body Wine Australia, total China imports climbed 35 percent by volume and 32 percent by dollar value in 2015. This follows two years of declines following the crackdown in 2012, according to Wine Intelligence data.

Rob Dundon, winemaker at family-owned Cape Barren Wines in South Australia state, said the resurgence in Chinese demand was being driven by "younger people genuinely getting into wine and learning as much as possible".

"The exciting thing from our point of view is we're not relying on government (gifts) to keep this growing, a lot of which was French expensive wines. There's still a lot of government gifting going on but it's much more subdued right now".

Mitchell Taylor, managing director at Taylors Wines, another South Australian producer, said: "First the austerity measures came in and all that excessive buying was starting to stop, but at the moment the export figures are very positive".

China's retail wine market is worth around 78 billion yuan ($12.3 billion), with imports making up around a third, according to a 2015 report from wine data analytics firm IWSR.

Growing wine exports are a welcome boost to Australia, whose economy has been hit hard by declining demand from China for its mainstay commodity products such as iron ore and copper.

HITTING THE SPOT

Treasury Wine Chief Executive Officer Michael Clarke said the sweet spot for the Melbourne-based company in China was the "masstige", or mass prestige, market of good but affordable wine, somewhere between the bottom shelf and the most prestigious grands crus.

"We could grow our commercial portfolio and grow our business and volumes, but we would only do that if we're getting margins that are nearing low-end (mass prestige) volumes," he told analysts on a call.

The company's net profit leapt 42 percent to A$60.6 million for the six months to Dec. 31, while sales rose 22 percent to A$1.1 billion.

The company has also been beefing up its distribution in Asia, which Clarke has predicted will be the company's biggest market by 2017.

Since a troubled foray into the U.S. mass market made Treasury Wine a takeover target in 2014, it has been taking its portfolio up-market to widen its margins, including the A$754 million purchase of Diageo Plc's (DGE.L) U.S. wine unit last year.

U.S. sales soared 67 percent as the company sold the same number of cases for higher prices, due to the switch to top-shelf product. Australian sales grew 6 percent in a "mature wine market", the company said.

($1 = 1.3972 Australian dollars)

(Writing by Stephen Coates; Editing by Kenneth Maxwell)